14 MAY 1927, Page 44

Finance—Public and Private

New South Wales Finance

DURING the past week there has appeared the prospectus of a New South Wales Loan for about £11,000,000, and there are certain features and circumstances surround- ing it which make the issue one of more than ordinary interest and importance. Incidentally, I may say that the Loan seems to present some particular attractions to the investor and especially to trustees, for it is in 51 per cent. form at the price of 99, giving a yield of well over £5 5s. per cent., which nowadays is an extraordinarily high yield to get on a good trustee security. The operation is largely of a conversion character, but cash subscriptions are also invited, and I think it will be found that there is a good response.


The circumstances surrounding the issue are, however, interesting in many respects, and to some extent they explain the unusually favourable terms offered to the investor. Some months ago I referred in these columns to the criticism, amounting to attacks, made in some quarters of the City with regard to Australian borrowing as a whole, and I then expressed the opinion that, while some part of this criticism was justified and even desirable, there was a good deal that was unfair and more in the nature of attack than actual fair criticism. That part of the criticism which might be regarded as useful and fair was concerned with certain defects in the prospectuses of some of the individual States, while the unfair part of the criticism consisted in the wholesale assertion that Australia was grossly overborrowing.


Dealing with these points in their reverse order, there is no doubt that the statements with regard to the growth in Australian debt and Australian borrowing went far beyond the points of legitimate criticism. In the first place, little or no allowance was made for the desirability of developing the resources of our Empire or of the great resources of Australia, compared with which even the loans outstanding would seem to be by no means excessive. In the second place, this criticism also made no allowance for a* fact which the Mother Country might reasonably be expected to have been keenly alive to, namely, the extent to which the growth in Australian indebtedness was directly ,attributable to the part played by our Oversea Dominions in the Great War. This fact was not unnaturally emphasized by Mr. Bruce, the Commonwealth Premier, on the occasion of his last visit here, when, addressing a gathering of bankers, he pointed out that no small part of Australia's debt to-day must be attributed to her War expenditure. Still more recently the Hon. W. J. McKell, the Minister of Justice and Assistant Treasurer of New South Wales, in a speech to a similar gathering, pointed out that New South Wales' contribution to War Loans was about £104,000,000, and that if that were to be excluded, the external debt of the State would only be about £40,000,000. Mr. McKell also had no difficulty in showing flow great was the wealth of the State and how ample the margin of security for investors. In fact, so far as' the charge of overborrowing in the general sense of the term is concerned, it may be said that Australia has been able to make an effective reply to the critics. •


At the same time, what may be termed the more constructive criticism has merited attention. For many: years, of course, our Oversea Dominions have had the special privilege of their loans being included in the group of trustee securities, with the result that their credit has come to be only- a trifle below that of the British Govern- ment itself. It is conceivable that in the case of some of the borrowers, at all events, this privilege has led to a little . carelessness both in the matter. of borrowing and in the preparation of the prospectus. It has brought about a feeling that there was practically no limit to the power- of the British investor to absorb such loans, while it has possibly also—as is usually the case when money can be obtained too easily—bred a certain amount of carelessness in fiscal arrangements. Sinking Funds, the importance of which is being increasingly recognized as Government debts expand, have been disregarded and prospectuses for large loans have given scant information either with regard to the precise financial position of the borrower or the purposes for which the loan is required.


These criticisms, however, have been acknowledged and met both by the Commonwealth Government of Australia and now by the State of New South Wales, of which the prospectus which appeared this week may be regarded as a concrete example. In the first place, the Government of New South Wales attaches a special Sinking Fund of I per cent. per annum .to the new Loan, while a Sinking Fund of per cent. per annum is also to be established in respect of previous London issues, both Sinking Funds to commence in July next year. The whole of these Sinking Funds will be applied in the purchase of New South Wales Government securities on the London market. In addition, the prospectus also gives full and complete information such as is due to the investor who is invited to subscribe to a large loan.


On this occasion, however, it is not a question of raising new money but simply of dealing with maturing obli- gations. Between now and the 1st July New South Wales has nearly £11,000,000 in maturing loans to meet, and it is the circumstance of these very heavy maturities which explains the distinctly favourable terms on which the new Loan is offered. The issue price haS already been mentioned at the opening of this article, and it may be added that the new Bonds will run for a minimum of twenty and for a maximum of thirty years. Certainly no complaint can now be made that New South Wales has not endeavoured to fulfil the wishes of British investors, who for so many years have backed their faith in the future of our Oversea Dominions by investing millions of their money. Looking, however, not so much to the present issue but to future financial loans by the State of New South Wales, the question arises whether in the long run the financial welfare, not only of New South Wales but of Australia generally, might not best be served by the New South Wales State coming into line with the General Loan Council of the Common- wealth, which, I believe, has for its object the co-ordinating of all Australian borrowing. I am sure that the credit of Australia as a whole can be most adequately preserved